The Advantage Of Municipal Utilities

By Patrick Mehr

Special to the Worcester Business Journal,

A report by the state Department of Energy Resources about municipal electric utilities (or munis, like those in Shrewsbury, Boylston, Hudson, Littleton, Groton) found that munis charge less than large investor-owned utilities (or IOUs such as NStar, National Grid, Unitil and Western Mass Electric).

While still relatively unknown, Massachusetts has 41 munis that serve 16 percent of the state.

And their cost savings is significant. In fact, in each of the years 2004 through 2008, muni rates were 14 percent, 18 percent, 30 percent, 28 percent and 21 percent lower than IOU rates for all customers combined.

Behind The Numbers

In 2009, a residential customer using 500 kilowatt hours per month paid $102 to Unitil, $97 to NStar, $82 to National Grid and $70 to the average muni. In other words, munis charged $32 less than Unitil, $27 less than NStar and $12 less than National Grid per month for the same electricity. Remarkably, muni bills for residential customers — without any low-income discount — were lower than the IOU’s discounted bills for low-income customers, by $6 for NStar and $17 for Unitil, which means that electricity is cheaper for Groton homeowners than for low-income Fitchburg residents.

Public facilities also pay less to munis than to NStar. In 2006-07, similar size high schools in greater Boston had total electricity costs of 9.2 cents per kilowatt hour if served by munis and 18 cents per kilowatt hour if served by NStar.

Businesses also pay less to munis than to IOUs. In 2007, a chain of supermarkets with stores across Massachusetts had total electricity costs of 11.3 cents per kilowatt hour from munis, 13 cents per kilowatt hour from National Grid and 14.5 cents per kilowatt hour from NStar.

If NStar charged as little for electricity as the average muni, residents in NStar’s service area would save each year about $400 million on their electric bills, and businesses and public facilities (schools, etc.) would save about $300 million. In short, NStar’s high rates effectively impose a “drag” of about $700 million per year on our economy.

The report also found that munis offer comparable or better service reliability than IOUs — something North Central Massachusetts directly experienced after the 2008 ice storm. It took Unitil up to two weeks to restore power to its customers, but munis had power back in days — and more local control — munis move wires underground, but IOUs will do it, if at all, only by charging customers an extra 2 percent.

Two bills (H3087 and S1527) that would enable more competition for utilities are currently in committee on Beacon Hill. The proposed legislation is supported by more than 120 organizations (including the Massachusetts Municipal Association, MASSPIRG and Environment Massachusetts) and by more than 2,000 residents who signed a petition asking the legislature to enact the bills.

Specifically, the proposals amend a century-old statute whose obsolete language now gives IOUs a monopoly. Once passed, cities and towns would have the option to replace an IOU with a muni. Competition from possible new munis will put serious pressure on IOUs to reduce their high rates and improve their service. To sign a petition urging the legislature to act on this issue, visit www.tinyurl.com/munipetition.

Mehr is statewide coordinator of the Massachusetts Alliance for Municipal Electric Choice. He can be reached at patrick.mehr@gmail.com

‘Muni’ Op-Ed Painted Too Rosy Of A Picture


Dear Editor,

The recent op-ed by Patrick Mehr (“The Advantage Of Municipal Utilities,” WBJ, March 29, 2010) espousing the benefits of municipally owned electric utilities ignores several key conclusions of the report that he cites. I served on the commission charged with reviewing the concept of municipalization, which produced the report that was authored by the Department of Energy Resources.

Mr. Mehr contends that a new municipal electric utility (muni) would be able to achieve the same rates as existing munis. However, the commission’s report specifically concludes that new municipal light companies are not likely to be able to achieve lower rates than existing investor-owned utilities (IOUs).

With respect to the price difference between IOUs and existing munis noted in the editorial, there are several factors that place IOUs at a disadvantage. Existing munis can enter into long-term contracts for energy but by state law IOUs cannot. IOUs allow residential and commercial customers to shop for power, including green power, while munis do not. All of the state's IOUs offer low-income discounts for some disadvantaged customers, but only three of the state's 41 munis do. IOUs are required to offer energy efficiency programs and renewable incentives, while munis participate only to varying degrees. The commission's report points out that even with these additional costs for IOUs, some municipal light departments have higher rates than IOUs.

Lastly, the report found that existing munis and IOUs provide comparable levels of service, not, as Mr. Mehr states, that munis offer comparable or better service. It is important for anyone interested in this issue to review the full report, which is available at www.mass.gov/EOEEA.

Municipalities are under enormous financial pressures, and a careful reading of the commission's report illustrates the perils for customers and taxpayers of creating new municipal light companies.

Michael J. Widmer
President, Mass. Taxpayers Foundation

Response To Mass. Taxpayers Letter


In "‘Muni' Op-Ed Painted Too Rosy Of A Picture" (4/12/10), Mr. Widmer misrepresents a Department of Energy Resources (DOER) report on municipal light plants (munis), much like investor-owned utilities (IOUs) routinely do.

The report is at
www.mass.gov/Eoeea/docs/doer/publications/doer-municipal-utility-rpt.pdf and a summary is at www.massmunichoice.org/resources/Annotated-summary-of-DOER-muni-report.pdf

DOER found that existing munis charge much less than IOUs, but noted "A new municipal utility, however, will likely have higher rates than the typical existing municipal utility" and that a location-specific study will be necessary to determine the economics of each new muni. That's very different from Mr. Widmer's assertion that new munis are unlikely to charge less than IOUs.

Existing munis do not let customers shop for power (charging less than IOUs, why should they?) and do not always offer comparable green energy programs as IOUs. But the legislation to allow new munis (bills H3087 and S1527) requires new munis to match IOUs in all these areas.

Regarding low-income customers, DOER's key finding is that muni rates for all residential customers are lower than the IOUs' discounted rates. In 2008, the standard muni rate - $66.70 - was less than IOUs charged low-income customers under their low-income discounted rates - $72.77, $67.71, $83.22, $69.67 respectively for NStar, National Grid, Unitil and WMECO (exhibit 25 of the report).

Regarding service, neighboring munis restored power much faster than Unitil after the 2008 ice storm, and blue-sky outages still happen in Unitil's territory, but not where munis provide service.

The "perils for customers and taxpayers" that Mr. Widmer fears from new munis are why the legislation requires a full review of the economic feasibility of each new muni by the local community, and by the state.

There are no such reviews about the compensation of IOU executives,
$7.4 million and $1.3 million for the CEOs of NStar and Unitil in 2009. Taxpayers being also electric ratepayers, can Mr. Widmer's Massachusetts Taxpayers Foundation do something about this?

Supporting new munis in Massachusetts to end the IOUs' monopoly would be an effective first step.

Patrick Mehr
Massachusetts Alliance for Municipal Electric Choice